Cindy Rehmeier, CFP®

Manager of Defined Contribution Plans

Missouri State Employees' Retirement System

(MOSERS)

Dick Davies

Senior Managing Director

AllianceBernstein, L.P.

CASE STUDY: Plan Sponsor

Insights on the Role of

Mapping and Re-Enrollment in

Capturing Target-Date Assets

Today’s Discussion

• Overview of MOSERS 457 Plan

• Reasons for Going Custom

• Implementation Process

• Portfolio Design Decisions

• MOSERS Thoughts on Mapping and Re-Enrollment

• Lessons for Other Plan Sponsors

• Potential Plan and Portfolio Enhancements

2

MOSERS 457 Plan Profile

• Assets of $1.8 billion

• 59,500 participants

• 70% participation rate

• $124 average monthly contribution

• Auto-enrollment at 1% rate

• Voluntary auto-escalation in 0.1% increments

• Custom TDF inception: April 2009

• Target-Date Assets: $685 million

• Recordkeeper: ICMA-RC

Plan Assets

38.2%

17.3%

42.1%

2.2% 0.2%

MO Target Date Funds

Closed Funds/Insurance

Stable Income

Brokerage Window

MIP Fund

3

MOSERS 457 Plan Investment Menu

Default Option QDIA – MO Custom Target Date Funds

Additional Core Options

Hands-on Investors

Stable Income

MIP Fund – monthly valued defined benefit plan portfolio

Self-Directed Brokerage

4

Why Did MOSERS Go Custom?

• Ability to customize for our public sector employees

• Avoid “off the shelf” asset allocation

• Glide path input:• Equity representation• Alternatives/real assets• High yield

• Cost considerations

• Passive fund construction

• Fiduciary oversight

34%

31%

17%

9%

9%

Control Over ManagersCustom

Glide Path

More DiverseAsset Allocation

Costs/FeeTransparency

FiduciaryConcerns

Source: Casey Quirk Target-Date Retirement Funds: The New Defined Contribution Background, November 2009

Industry Survey Data

5

Implementation: Three Primary Workstreams

Investments Design Glide Path

Glide path

Asset classes

Components

OperationsDaily Operations/

Develop Asset Transition Strategy

Component transition strategy

Interfaces:

Recordkeeper

Managers

Custodian

CommunicationsAdvise and Consult With Recordkeeper

on Participant Communications Strategy Introduction

Ongoing

6

7

Glide Path Customization Issues

Custom Target-Date Glide Paths Range

AllianceBernstein Clients

Source: AllianceBernstein

0

20

40

60

80

100

20 30 40 50 60 70 80 90 100

% S

tock

Age

Key Customization Considerations

Goals, risk tolerance or other objectives

Typical retirement age and post-retirement behavior

Company stock holdings and defined benefits

Wage level, growth and deferrals

Employment risk or frequency of job changing

Sponsor perspective

7

Asset Class Usage in Custom Portfolios22 Plans – Year-End 2013

Equity Fixed Income Diversifiers

AssetClasses

US

Lar

geC

ap

US

Smal

l/M

id C

ap

US

All

Cap

Int’

l Dev

elo

ped

Int’

l Sm

all C

ap

Emer

gin

g M

arke

ts

Co

reB

on

d

Glo

bal

Bo

nd

Go

v’t

Bo

nd

Hig

h Y

ield

Lon

g D

ura

tio

n

Sho

rt D

ura

tio

n

Emer

gin

g M

arke

ts

TIP

S

Stab

le V

alu

e

Cas

h

REI

TS

Co

mm

od

itie

s

Rea

l Ass

ets

Ris

k Pa

rity

Active 2 5 - 4 - 8 7 2 - 11 1 3 2 6 3 6 7 3 2 1

Blend 5 7 - 8 - - 2 - - - - - - - - - - - - -

Passive 14 9 1 10 1 4 12 - 1 1 - 7 - 15 - 1 7 2 - -

TotalPlans

21 21 1 22 1 12 21 2 1 12 1 10 2 21 3 5 14 5 2 1

Source: AllianceBernsteinActive Bias Passive/Hybrid Bias

8

0

25

50

75

100

25 30 35 40 45 50 55 60 65 70 75 80 85+Ex

po

sure

(%

)Age

Young Saver Midlife Saver New Retiree Senior Retiree25 30 35 40 45 50 55 60 65 70 75 80 85+

US Large Cap Stocks 32.5 32.5 32.5 32.5 30.0 27.5 24.5 22.3 20.0 16.5 12.5 8.5 8.5

US SMID Cap Stocks 10.0 10.0 10.0 10.0 9.0 8.0 7.5 6.3 5.0 3.5 2.5 1.5 1.5

Emerging Markets 8.5 8.5 8.5 8.5 8.0 7.0 6.5 5.8 5.0 4.0 3.0 2.0 2.0

Int’l Stocks (Developed) 34.0 34.0 34.0 34.0 31.0 28.5 25.5 22.8 20.0 16.0 12.0 8.0 8.0

REITs 5.0 5.0 5.0 5.0 7.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

Commodities 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0

High Yield Bonds – – – – 5.0 7.0 7.0 7.0 7.0 5.0 2.5 – –

Core Intermediate Bond 5.0 5.0 5.0 5.0 5.0 7.0 7.0 7.0 9.0 11.0 14.5 17.5 17.5

Inflation Protected Securities (TIPS) – – – – – – 7.0 14.0 19.0 20.0 20.0 20.0 20.0

Short Duration Bond – – – – – – – – – 9.0 18.0 27.5 27.5

Total Stock Allocation 85.0 85.0 85.0 85.0 78.0 71.0 64.0 57.0 50.0 40.0 30.0 20.0 20.0

Total Diversifier Allocation 10.0 10.0 10.0 10.0 17.0 22.0 22.0 22.0 22.0 20.0 17.5 15.0 15.0

Total Investment Grade Bond Allocation 5.0 5.0 5.0 5.0 5.0 7.0 14.0 21.0 28.0 40.0 52.5 65.0 65.0

This chart does not represent any particular target date fund. It is meant to show how the investment mix of any of the Missouri Target Date Funds changes over a lifetime. Numbers may not sum due to rounding. Source: AllianceBernstein

Stocks

BondsDiversifiers

Glide Path ConstructionMissouri State Employees’ Retirement System

9

Previous Plan and Participant Characteristics

• 31 Fund Options • 11 Large Cap• 2 Mid Cap• 5 Small Cap• 3 International• 4 Fixed Income• 5 Asset Allocation• Stable Value

• 60% of participants only in 1 fund

• Over 32% in equity mutual funds

• Stable value default

• Average plan expense ratio of 0.90%

10

32%

3%4%

60%

1%MOSERS Plan Assets

Equity Funds

Fixed IncomeFunds

Asset AllocationFunds

Stable Value

Self-DirectedBrokerage

60%

34%

3% 3%

MO Target DateFunds

Equity MutualFunds

Fixed IncomeMutual Funds

Asset AllocationMutual Funds

81%

8%

11%

Equity MutualFunds

Fixed IncomeMutual Funds

Asset AllocationMutual Funds

Re-Enrollment Experience: $440 Million Mapped

Before Re-enrollment: After Re-enrollment:

Mutual Funds: 39% of Total Plan Assets% of Total Plan Assets:• Target Date Funds: 25%• Mutual Funds: 17%

11

Today

Plan Asset Allocation Contributions

58.7%25.6%

0.5% 14.3%

0.9%

MO Target Date Funds

Stable Income

MIP Fund

Closed Funds/ Insurance

Brokerage Window

38.2%

17.3%

42.1%

2.2% 0.2%

MO Target Date Funds

Closed Funds/Insurance

Stable Income

Brokerage Window

MIP Fund

Plan average expense ratio: 0.34% (includes closed funds)

12

Target-Date Defaults: More Systematic Outcomes

Representative DC data for the example client reflect stock allocations for excluding self-directed brokerage investments as of 1Q:09 for 29,483 participants with over $5,000 in account value.

401(k) plan average stock allocations exclude investments in target-date funds and treat allocations to balanced funds as 50% stock.

Source: AllianceBernstein

Percent of Assets Invested in Equities By Age – Client Example

AllianceBernstein Implemented Target-Date Glide Path Equities by Participant

0

20

40

60

80

100

25 30 35 40 45 50 55 60 65

13

Re-Enrollment Growing, But Still Misconceptions

12.2%

76.8%

8.5%

0 1 2 3 4 5 6 7

Too Costly

Mgmt Objections

Admin Complexities

Communication Difficult

Fiduciary Liabilities

Not Necessary

Participant Objections

10 = Most Important

YesNext Year

No

?

Have You Re-Enrolled? Why Not Re-Enroll?

Source: Callan 2014 Defined Contribution Trends

14

Advice for Plan Sponsors

What Would You Do Again?

• Go custom target-date

• Re-enroll antiquated mutual fund assets with opt-out

• Close old line-up mutual funds to new investors

• Advance participant notification

What Would You Do Differently?

• Re-enroll Stable Value assets with opt-out

15

What’s Next For MOSERS?

• Auto-escalation to 5% (opt-out, not opt-in)

• Continued glide path asset review

• Possible glide path tweaks – avoiding “too cute by half”

16